Non-cultivation due to vagaries of nature will not change character of land to non agricultural

Non-cultivation of land due to vagaries of nature will not change the character of land from agriculture to non- agricultural land – ITAT allowed exemption u/s 54B

ABCAUS Case Law Citation:
ABCAUS 3021 (2019) (06) ITAT

During the year, the assessee had sold land and claimed deduction under section 54B of the Income Tax Act, 1961 (the Act).

The Assessing Officer (AO) and the CIT(A) treated the said land as non-agricultural land on the ground that the land was not put to use for the purpose of agriculture for two years preceeding to the date on which transfer took place.

The AO and the CIT(A) arrived at this conclusion based on Girdawari of the Patwari, wherein it was mentioned that the total agricultural land consists of five Khasras and no agricultural produce was recorded in two Khasras.

The Revenue Authorities concluded that since no agricultural activity has been conducted on two Khasras, the entire plot could not be treated as an agricultural land. Further, the Revenue authorities held that in the absence of submissions of details pertaining to purchase of seeds, purchase of fertilizers and failure to submit the bills pertaining to agricultural labour, the assessee could not be said to have undertaken agricultural operations on the said land.

The Revenue authorities also discarded bills produced pertaining to sale of agricultural produce on the ground that the bill is un-dated and there was no signature of the recipient on the J-Form submitted by the assessee.

The Tribunal observed that all the five Khasras were cultivated in before preceding two years and three Khasras had been cultivated during the last two years. It was also found that the entire land was a continuous plot.

The Tribunal noted that as submitted by the assessee, agriculture activities could not be performed due to inundation of two Khasras and this fact was not disputed by the Revenue.

The Tribunal opined that when the agricultural activities could not be undertaken in a part of the land it does not disentitle the entire land character of being agricultural land. Non-cultivation of land for a year owing to vagaries of nature will not essentially change the character of land from agriculture to non- agricultural land. Hence, the land had to be treated as agricultural land and consequently the sale proceeds also.

Further, the Revenue had also declined to accord exemption u/s 54B from the capital gain on the amount invested in purchase of new agricultural land on the grounds that the assessee had not shown any income from agricultural land purchased out of the funds derived from the sale of agricultural land.

The assessee contended section 54B does not stipulate that subsequent to purchase of agricultural land, the assessee has to invariably undertake agricultural operations on that land to make it eligible for deduction and such reading of the Act is not the legislative intention which will defeat the very purpose of reinvesting in the agricultural land.

The Tribunal observed that a plain reading of the provisions of section 54B stipulates that the assessee has to , within a period of two years after that date, purchase any other land for being used for agricultural purposes. Hence the revenue’s contention that the assessee could not be allowed exemption because he had not shown the earning of the agriculture income was devoid of any merit.

The Tribunal held that it could not be said that the assessee had not been eligible for deduction 54B in the absence of any other material brought by the Revenue so as to prove that the said land was not agricultural land, but used for anyother non agricultural purpose or any business purpose or commercial use like warehouse, marriage hall etc.

Accordingly, the appeal of the assessee on this ground was allowed.

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